Can Mother Nature Derail Your Sale?
Everything is on track. You have a great buyer who is willing to pay a good price. Your real estate attorney has negotiated the best possible terms into your Purchase and Sale Agreement. The buyer’s home inspection is over, and her financing commitment is in place. What could possibly derail this transaction?
In our unpredictable climate, it is increasingly more common for a seller to be surprised by an extreme weather event involving snow, ice, wind or rain. These storms can cause problems ranging from a temporary power outage to more costly structural damage. If you are in the process of selling your house, such damage can be devastating.
Understand your obligations. When purchasing a home, a buyer will typically have a home inspection at the beginning of the process. At that time, the buyer may negotiate cost concessions from the seller or request that certain repairs or improvements be completed prior to closing. In order to be contractually binding, any such concessions or requests must be added to the final draft of the Purchase and Sale (P&S) Agreement before it is signed by the parties. Aside from those issues specifically listed in the agreement, the standard P&S Agreement typically provides that the buyer is purchasing the property “as is”, with the exception of reasonable wear and tear from normal usage.
Under the standard P&S Agreement, the seller may take a 30 day extension to make the property confirm if it cannot be properly delivered on the contracted closing date. In the event of a storm which causes flooding or structural damage (e.g. if a tree were to fall through the roof), where the property is often not able to be delivered on the closing date in this contracted “as is” condition, the seller may typically take this extension to attempt to bring the property to compliance. In the alternative, the parties may agree to close as scheduled with a price reduction to reflect the cost of repair assumed by the buyer.
Under the standard agreement, the seller is also responsible to maintain insurance on the property until the closing, when the ownership interest is officially transferred to the buyer. The seller is usually only required to maintain the insurance that is presently in place at the time that the agreement is signed. When major damage to the property warrants an insurance claim, the buyer usually also has the option of accepting the insurance proceeds with the property in its damaged condition.
Avoid damage. Although it is impossible to predict with certainty whether a storm will hit or if it will damage your house, it is important to take immediate actions to prevent damage whenever possible. If torrential downpours are predicted in your area, and if your basement has experienced flooding in the past, get your pump ready. If there are trees near your house, consider trimming the branches to avoid damage. If a hurricane is coming, bring in the lawn furniture. These preemptive steps may seem like common sense, but are often overlooked by the seller who is focused on an upcoming closing or moving date.
Act quickly. Once the storm strikes, identify any damage and quickly take steps to repair it. If there is flooding, quickly remove the water and do whatever possible to eliminate the resulting moisture, which may cause mold. Do not delay in calling a contractor to repair roof or other structural damage. In the event of a big storm, the best local contractors will be receiving many calls, and you may experience delayed responses (and sometimes no response at all). If you do not know who to call, your real estate broker or attorney should be able to refer you to a local contractor. The longer such issues are allowed to go un-remedied, the greater the ultimate cost.
If the damage is significant, contact your insurance company immediately to initiate a claim. In the event of a major weather incident, the insurance company will likely be inundated with claims. Often, your insurer will need to appraise the property damage prior to authorizing repair. Get your paperwork together quickly and stay on top of your claim in order to avoid delays in the appraisal process.
Unfortunately, there is not much anybody can do to manage our increasingly unpredictable weather. Although the buyer is usually entitled to walk away from purchasing a property that sustains major damage, you can do everything possible to avoid or minimize the damage, and ensure that your sale is not completely derailed by a natural disaster.
Jessica Sales Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.
When Is A Real Estate Broker Entitled To A Fee?
In our many years of practice, there are some issues which tend to show themselves at regular intervals. One such issue that we are regularly asked to clarify is at what point in a transaction is a real estate broker entitled to a fee.
In Massachusetts, a real estate listing broker is usually hired by the seller to list the property for a percentage of the purchase price. The broker and seller typically sign an exclusive listing agreement, which is a contract setting forth the parameters of the representation, including the percentage commission and length of time which the agent will have to sell the property. As an extension, the listing agent then offers a percentage of the contracted commission to any buyer’s broker (sometimes referred to as the selling broker) who brings a buyer that ultimately purchases the property. The brokers then typically receive their payment of commission at the time of the purchase closing.
There are circumstances, however, where a broker lists a property for a seller and shows it to potential buyers according to the terms of the listing agreement, but the property does not ultimately sell during the listing period. In such a case, the seller may wonder whether he is obligated to pay the broker for the services provided during the listing period.
The current law was set forth by the Massachusetts Supreme Judicial Court in Tristam’s Landing, Inc. v. Wait, 367 Mass. 622, 629-630 (1975). In Tristam’s Landing, the court announced the “default” rule as to when a real estate broker’s commission becomes due. In that seminal case, the Court held that, absent a valid contract to the contrary, a real estate broker will be entitled to his or her commission from the seller only if a) the broker produces a buyer who is ready, willing and able to buy on terms fixed by the seller; b) the buyer enters into a binding contract with the seller to do so; and c) the sale is consummated in accordance with the contract or, if not consummated, the failure of consummation is due to wrongful act or interference by the seller and not to any default by the buyer (emphasis added). The Court went on to hold that this “default” rule may be easily circumvented by language to the contrary in agreements between sellers and brokers.
What does the court’s ruling in Tristam’s Landing mean for everyday sellers of property? If your agreement provides nothing more than the “default” rule, you will only be required to pay your broker if he or she brings a ready, willing, and able buyer to the transaction, and 1) the transaction ultimately closes or 2) the transaction does not close, but this failure to close is due to something other than the seller’s wrongful act or interference. Under this default rule, if the seller is not required to pay his or her broker if the buyer walks away for any reasons related to financing or inspection, as long as the seller did not interfere with the process.
If, however, your listing agreement sets fort something other than the default rule, you will be bound by its terms. For example, if the listing agreement states that the seller must pay the listing agent an hourly rate for showing the property, or a fixed rate for listing the property on the Multiple Listing Service (MLS), then the seller will be required to pay the rate regardless of whether a buyer is found or the sale is consummated.
Simply put, you should always be sure to read and understand your listing agreement, which will set forth exactly when the broker is entitled to be paid. If you have any doubts, bring the agreement to an experienced real estate attorney, who will advise you of your rights and obligations before you sign it and obligate yourself contractually.
Sol J. Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.
What Every Buyer Should Know About A Short Sale
In this housing market, many buyers are out looking for the best deal possible. When you find a property that appears to be listed far below the local market, it may be a short sale.
What is a “short sale”? A short sale occurs when a owner of real estate seeks to sell a property where the outstanding amount due on the mortgage is more than the agreed sale price. In order to complete this type of transaction, the seller’s mortgage holder must be willing to accept less than the outstanding mortgage amount in order to release its lien on the property. For example, the lender may approve a short sale to avoid a lengthy and expensive foreclosure process, especially if it anticipates that the proceeds from a foreclosure auction may be less than from a short sale. Ultimately, the short sale process results in the lender accepting a reduced payment and the seller receiving no proceeds from the sale.
Hire professionals with experience. When dealing with a short sale, it is important to have an agent and attorney experienced not only in transactional work generally, but also specifically in the short sale process, which is intricate and time-sensitive. You will do yourself a service by surrounding yourself with professionals who have successfully closed short sales in the past. An experienced agent will know how to best submit the paperwork to expedite the process. An experienced attorney will ensure that you are meeting the sensitive financing and closing deadlines, and will help you avoid legal pitfalls specific to short sales.
Know the process. The short sale process is considerably more complicated and lengthy than a normal purchase. Once the seller has accepted your offer, the offer must then be submitted to his lender for approval. Unless and until the lender completes a sometimes lengthy analysis of the transaction, and approves it, you do not have a deal. An experienced agent will send the offer to the lender right away, along with a copy of your earnest money and pre-approval letter. Along with your offer, the seller will need to submit documentation that he or she has no equity in the property and is unable to repay the loan due to hardship. Once the short sale is approved, the seller’s lender dictates the conditions of the release of its mortgage. Meanwhile, despite the lengthy approval process, you as buyer will be expected to do everything necessary to get your financing in order in a timely manner – even with no guarantee that the short sale will be approved ultimately.
Do your homework. Do some research before making an offer to purchase a short-sale property. A quick search of the records at the Registry of Deeds can tell you who owns the property, how many mortgages are outstanding, and whether a complaint to foreclose has been filed. This up-front research will help you formulate an offer that the lender is most likely to consider. Ask your attorney to assist you with this as necessary.
Have an inspection. Property purchased in a short sale is usually sold “as is”. Generally, the lender will not negotiate the purchase price or provide credits based on property defects. As such, it is extremely important that you obtain a home inspection early on in the process to avoid surprises later on. If you are not comfortable with any major element of the property’s condition, consider walking away from the deal early.
Prepare to wait. A short sale can take several months to complete. It is not unusual for a lender to respond to an offer from weeks to months after it is submitted. An experienced agent and attorney will find out the right contact person at the lender to keep the process moving, but ultimately the timeline is in the lender’s hands. If the lender does accept your offer, it will issue an approval letter, setting forth very specific conditions which must be met at the closing in order for the lien to be released. It is critical for your attorney to be experienced with short sales and understand the approval letter in order to ensure that all conditions are satisfied in full at the closing.
There are certainly great deals to be had through short sales, as long as the buyer is informed about the process, does his homework, and surrounds himself with competent, experienced real estate professionals who will help guide him away from pitfalls.
Sol J. Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.
What You Need To Know Before Making An Offer To Purchase Real Estate
You’ve decided that you are ready to buy a home. Uncertainty about the process can be a major source of stress for first-time homebuyers. Buying a house does not need to be overwhelming. Rest assured that with the right information, and the advice of experienced and trusted professionals, your first purchase can be a painless, and positive experience.
Think about financing. If you will need financing for your purchase, you may want to get pre-approved for a loan before you begin looking at properties. Having a pre-approval will not only help you determine your price range when looking, but it will also ultimately make your offer more attractive to sellers.
Find the right Realtor. Make sure your real estate agent understands not only your cost parameters, but also your personal goals. Are you looking for good schools and a quiet neighborhood? Do you prefer to be close to services or major commuting roads? Choose somebody who will listen to you, and don’t be afraid to speak up about what you do and do not like.
Think before you make an Offer. Don’t feel pressure to make an offer on the first house you see. Try to see a few places to get a sense of the local market. When you do decide to make a bid, work with your real estate professional to ask questions about the property, and make sure that you are satisfied with the answers before you make the offer. If you are satisfied and ready, don’t delay. If you wait too long, there may be other offers, which will put you in a weaker position when negotiating the price.
Understand the process. Generally, there are several steps in the purchase process. First you will find your property and submit an Offer to Purchase. If the Offer is accepted, you will likely have the opportunity to retain a professional home inspector to conduct an inspection of the property. After that, your real estate attorney will work with you to negotiate a Purchase and Sale Agreement (a.k.a your “P&S Agreement”), which is generally signed 1-3 weeks after the accepted offer. After the Purchase and Sale Agreement is executed, you will usually have a period of time for planning and completing your financing paperwork before the real estate closing. The closing will usually occur within 30-60 days of signing the Purchase and Sale Agreement, but can occur at any time by agreement of the buyer and seller.
Know the costs. First time-home buyers often forget to consider all of the costs and timing of payments associated with the purchase before making their offer. Generally, there will be a small check for earnest money paid with the Offer to Purchase. An additional deposit will be required at the time of signing the Purchase and Sale Agreement. The total amount of these deposits are negotiable between Buyer and Seller, but often total 5% of the purchase price. These deposit amounts will then be credited as a portion of the purchase price at the time of the closing. Additionally, the buyer must budget for closing costs which will be due at closing. A first-time homebuyer should work with their real estate and mortgage professionals to calculate this approximate figure to determine the total cost of the purchase when deciding to make an offer.
Avoid Surprises. After an Offer to Purchase is accepted, the buyer will have the opportunity to have the home inspected by a professional. Unless you are a professional contractor or handyman, it never pays to skip the home inspection. A qualified home inspector will identify repairs and defects (both major and minor) which may be missed in a simple walk-through of the property. The buyer can use the home inspector’s report to determine if the house needs major costly repairs that would cause him or her to back out of the deal. Additionally, the buyer can use the report to negotiate a price reduction to address issue that will need repair in the future.
The most important rule to remember when making an offer to purchase real estate is: don’t be afraid to speak up. None of your questions should go unanswered. Your qualified real estate attorney and team of professionals will ensure that you have a smooth purchase process, avoiding any pitfalls and surprises along the way.
Jessica Sales Cohen is a partner at Cohen & Sales, LLC, a Waltham based law firm with a combined 30 years of experience in Real Estate Conveyancing and general litigation. For more information contact Cohen & Sales, LLC at (617) 621-1151 or info@cohenandsales.com.